Chapter 15
Why Do Financial Institutions Exist?
Multiple Choice Questions
1. Of the following sources of external finance for American nonfinancial business, the least
important is
(a) loans from banks.
(b) stocks.
(c) bonds and commercial paper.
(d) nonbank loans.
Answer: B
2. Of the following sources of external finance for American nonfinancial business, the most
important is
(a) loans from banks.
(b) stocks.
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(c) bonds and commercial paper.
(d) nonbank loans.
Answer: D
3. Of the sources of external funds for nonfinancial business in the United States, bonds account for
approximately _________ of the total.
(a) 10 percent
(b) 20 percent
(c) 30 percent
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(d) 50 percent
Answer: C
4. Of the sources of external funds for nonfinancial business in the United States, stocks account for
approximately _________ of the total.
(a) 10 percent
(b) 20 percent
(c) 30 percent
(d) 40 percent
Answer: A
186 Mishkin/Eakins ?Financial Markets and Institutions, Fifth Edition
5. With regard to external sources of financing for nonfinancial business in the United States, which
of the following are accurate statements?
(a) Marketable curities account for a larger share of external business financing in the United
States than in most other countries.
(b) Since 1970, less than 5 percent of newly issued corporate bonds and commercial paper have
been sold directly to American houholds.
(c) The stock market accounted for the largest share of the financing of American business in the
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(d) All of the above.
(e) Only (a) and (b) of the above.
Answer: E
6. With regard to external sources of financing for nonfinancial business in the United States, which
of the following are accurate statements?
(a) Direct finance is ud in less than 5 percent of the external financing of American business.
(b) Only large, well-established corporations have access to curities markets to finance their
activities.
(c) Loans from banks and other financial intermediaries in the United States provide five times
more financing of corporate activities than do stock markets.
(d) All of the above.
(e) Only (a) and (b) of the above.
Answer: D
7. (I) In the United States nonbank loans are the most important source of external funds for
nonfinancial business. (II) In Germany and Japan, issuing stocks and bonds is the most important source of external for nonfinancial business.
(a) (I) is true, (II) fal.
(b) (I) is fal, (II) true.
(c) Both are true.
(d) Both are fal.
Answer: A
8. Which of the following is not one of the eight basic facts about financial structure?
(a) Debt contracts are typically extremely complicated legal documents that place substantial
restrictions on the behavior of the borrower.
(b) Indirect finance, which involves the activities of financial intermediaries, is many times more
important than direct finance, in which business rai funds directly from lenders in financial
markets.
(c) Collateral is a prevalent feature of debt contracts for both houholds and business.
(d) New curity issues are the most important source of external funds to finance business.
宾词Answer: D
Chapter 15 Why Do Financial Institutions Exist? 187
9. Which of the following is not one of the eight basic facts about financial structure?
(a) The financial system is among the most heavily regulated ctors of the economy.
(b) Issuing marketable curities is the primary way business finance their operations.
(c) Indirect finance, which involves the activities of financial intermediaries, is many times more
important than direct finance, in which business rai funds directly from lenders in financial
markets.
(d) Financial intermediaries are the most important source of external funds to finance business.
Answer: B
10. Becau information is scarce,
(a) equity contracts are ud much more frequently to rai capital than are debt contracts.
(b) monitoring managers gives ri to costly state verification.
(c) government regulations, such as standard accounting principles, can help reduce moral hazard.
(d) all of the above are true.
(e) only (b) and (c) of the above are true.
Answer: E
11. Which of the following best explains the recent decline in the role of financial intermediaries?
(a) Private production and sale of information
(b) Government regulation to increa information
(c) Improvements in information technology
(d) None of the above can explain the recent decline
Answer: C宣传工作方案
12. (I) The total cost of carrying out a transaction in financial markets increas proportionally with the
size of the transaction. (II) Financial intermediaries facilitate diversification when an investor has
only a small sum to invest.
(a) (I) is true; (II) is fal
(b) (I) is fal; (II) is true
(c) Both (I) and (II) are true
(d) Both (I) and (II) are fal
Answer: B
13. If bad credit risks are the ones who most actively ek loans and, therefore, receive them from
financial intermediaries, then financial intermediaries face the problem of
(a) moral hazard.
(b) adver lection.
(c) free-riding.
(d) costly state verification.
Answer: B
14. If borrowers take on big risks after obtaining a loan, then lenders face the problem of
(a) free-riding.
(b) adver lection.
(c) moral hazard.
(d) costly state verification.
188 Mishkin/Eakins ?Financial Markets and Institutions, Fifth Edition Answer: C
Chapter 15 Why Do Financial Institutions Exist? 189
15. Becau of the lemons problem in the ud car market, the average quality of the ud cars offered
for sale will be _________, which gives ri to the problem of _________.
(a) low; moral hazard
(b) low; adver lection
(c) high; moral hazard
(d) high; adver lection
Answer: B
16. In the ud car market, asymmetric information leads to the lemons problem becau the price that
buyers are willing to pay will
(a) reflect the highest quality of ud cars in the market.
(b) reflect the lowest quality of ud cars in the market.
(c) reflect the average quality of ud cars in the market.
(d) none of the above.
Answer: C
17. The problem created by asymmetric information before the transaction occurs is called _________,
while the problem created after the transaction occurs is called _________
(a) adver lection; moral hazard.
(b) moral hazard; adver lection.
(c) costly state verification; free-riding.
(d) free-riding; costly state verification.
Answer: A
18. A borrower who takes out a loan usually has better information about the potential returns and risk
of the investment projects he plans to undertake than does the lender. This inequality of information
is called
(a) moral hazard.
(b) asymmetric information.
(c) noncollateralized risk.
(d) adver lection.
Answer: B
19. Adver lection is a problem associated with equity and debt contracts arising from
risks of his
(a) the lender’s relative lack of information about the borrower’s potential returns and
investment activities.
(b) the lender’s inability to legally require sufficient collateral to cover a 100 percent loss if the容积怎么计算
borrower defaults.
航空服务专业(c) the borrower’s lack of incentive to ek a loan for highly risky investments.
(d) none of the above.
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Answer: A
